Tax
Law 345: Final Outline 2015
Natalie Pawson
Tax
Table of Contents
CHECKLISTS .................................................................................................................3
Is it Income from a Source? .........................................................................................4
Calculation from the Act.................................................................................................................. 4
Source as a Basis for Tax Liability .................................................................................................... 4
Retiring Allowance (Taxable) ........................................................................................................... 5
Surrogatum Principle (Taxable) ....................................................................................................... 5
Resident of Canada for Purposes of Tax Liability? ........................................................5
Approach ......................................................................................................................................... 5
Ordinary Residence ......................................................................................................................... 5
Deemed Residence .......................................................................................................................... 6
Part Year Residence ......................................................................................................................... 6
Dual Residence ................................................................................................................................ 6
Deemed Corporate Residence......................................................................................................... 7
Provincial Residence ........................................................................................................................ 7
Income from Office or Employment? ...........................................................................8
General Provisions ........................................................................................................................... 8
Wiebe Door Test .............................................................................................................................. 8
Employee vs. Independent Contractor............................................................................................ 9
Is TP entitled to Benefits, Reimbursement or Allowances? ............................................................ 9
Benefits Received ........................................................................................................................ 9
IT-470R – CRA PRactices for Benefits ........................................................................................ 10
Personal or Living Expenses Allowance ..................................................................................... 10
Vehicle or Travelling Allowance (Exception – Not Included in Income) .................................... 11
Special or Remote Worksite (EXCEPTION – NOT INCLUDED in income).................................... 11
Deductions in Computation of Income? ....................................................................................... 11
General Limitation on EM Deductions ...................................................................................... 11
Travelling Expenses ................................................................................................................... 12
Legal Expenses .......................................................................................................................... 12
Professional or Union Dues – Cost of Performing Duties .......................................................... 13
Cost of Supplies ......................................................................................................................... 13
Home Office Expenses ............................................................................................................... 13
Income from Business or Property? ........................................................................... 14
Income from Business ................................................................................................................... 14
General ...................................................................................................................................... 14
Canadian Controlled Private Corporations (CCPC) .................................................................... 14
Personal Services Business (PSB) ............................................................................................... 14
Specified Investment Business (SIB) .......................................................................................... 15
Business vs. Personal Endeavour – TEST ................................................................................... 15
Gambling or Windfalls .............................................................................................................. 16
Acquiring Capital to Earn Income.............................................................................................. 16
Adventure or Concern in the Nature Trade - TEST .................................................................... 16
Factors (IT-218R, IT-459) ........................................................................................................... 16
IT-459 ........................................................................................................................................ 17
Income from Property ................................................................................................................... 17
General ...................................................................................................................................... 17
Interest ...................................................................................................................................... 18
Rent and Royalties..................................................................................................................... 18
Tax
Dividends ................................................................................................................................... 19
Can TP Deduct anything from Business or Property? ................................................................... 19
General Provisions ..................................................................................................................... 19
Personal or Living Expenses ...................................................................................................... 20
Moving Expenses ....................................................................................................................... 20
Vehicle Expenses ....................................................................................................................... 21
Home Office Expenses ............................................................................................................... 21
Deduction of Interest Expense................................................................................................... 21
Current vs. Capital Expense ....................................................................................................... 22
Depreciable Property and Capital Cost Allowance .................................................................... 22
Policy for Denying Certain Deductions ...................................................................................... 24
Is there a Capital Gain or Loss? .................................................................................. 25
General Provisions ......................................................................................................................... 25
Capital Gain - Definition ................................................................................................................ 25
Immigration and Emigration – Deemed Disposition of Property .................................................. 26
Policy for Capital Gains .................................................................................................................. 26
Lottery Winnings ........................................................................................................................... 27
Partial Disposition and Identical Properties .................................................................................. 27
Non-Arms Length and Related Persons......................................................................................... 27
Gifts and Sales below FMV to Non-Arms Length Person.......................................................... 28
Disposition on Death ..................................................................................................................... 28
Spousal Rollover ............................................................................................................................ 28
Attribution Rule ......................................................................................................................... 29
Personal Use Property (PUP) and Listed Personal Property (LPP) ................................................ 29
Disposal of pup and lpp ............................................................................................................. 29
lpp Net Capital Losses and Gains .............................................................................................. 30
Calculation for Capital Gains and LPP Gain............................................................................... 30
Principal Residence Exemption ..................................................................................................... 31
Tax
CHECKLISTS
Business Checklist:
1. Check s.248(1) for definition – is it a profession?
a. Include yearly salary/income
2. Is there a CCPC vs. PSB issue? – use Wiebe Door to determine if it is business or EE
3. Include ALL expenses of running a business as deductions
a. Used to earn a profit? – DEDUCTION (including if they use their car)
b. Check specifics as well
c. Home Office?
EE Checklist:
1. Include the Salary
2. Is there a CCPC vs. PSB issue? – use Wiebe Door to determine if it is business or EE
3. ID ANYTHING THEY RECEIVED FROM ER!! – this is a benefit and needs to be included as taxable
income!
a. Consider CRAs practices from IT-470R
b. Look for allowances, reimbursements, etc.
4. Can they deduct anything? – rare to deduct…
a. Home Office?
b. Travel expenses – no commuting!!
PRE Checklist:
1. Disposal of property? (real or shares?)
a. Could it be covered by PRE if it is a home?
2. If PRE, does it meet the requirements?
a. Ordinarily inhabited?
b. House and land exceed 0.5 hectares?
c. Years owned since LAST ACQUISITION (deemed acquisition counts, like on immigration
or emigration)
d. Years as PR while resident in Canada?
3. Determine calculation – want it to equal 0 because you cannot deduct a loss on PUP
Tax
Is it Income from a Source?
Calculation from the Act
*NOTE: it is up to the TP to report income correctly and include everything reportable and have the
burden of proof to show that the amounts are taxable or not (Siftar)
s.4(1)(a) – calculate income from EACH source INDEPENDENTLY and take deductions off PER source
1.
2.
3.
4.
5.
S.3(a) – total POSITIVE amounts of income from worldwide sources (office, employment,
business, property), other sources not listed, must be from productive source (Curran, Schwartz)
a. S.56(1) – other sources: (a) pension benefits, EI benefits, retiring allowance, (h) RRSP
withdrawals, (n) non-exempt scholarships, (q) RESP withdrawals, (u) welfare benefits
i. Embezzled funds or illegal business (Buckman)
b. New sources are allowed under s.3(a) but none found to date, courts will not add
sources if they are dealt with by other areas of the Act (Bellingham)
i. Advanced payments for future services is closest to new source so far (Curran)
c. NOT income from source: punitive damages (Bellingham, Cartwright), gambling,
windfalls (Cranswick), gifts and inheritance (Bellingham), strike pay (Fries), lottery
(LeBlanc)
i. Personal injury damages UNLESS it is reasonably considered EM income then
will be taxable (IT-365R2, Tsiaprallis)
d. Factors to determine if it comes from a source re windfall (Cranswick):
i. TP had no enforceable claim to the payment
ii. No organized effort on the part of TP to receive payment
iii. Payment was not sought after or solicited by TP in any manner
iv. Payment was not expected by TP, either specifically or customarily
v. Payment had no foreseeable element of recurrence
vi. Payor was not in consideration for in in recognition of property, services or
anything else provided or to be provided by the TP; it was not earned by the
TP, either as a result of any activity or pursuit of gain carried on by the taxpayer
or otherwise
e. Once determined income is from a productive source, determine if there is sufficient
nexus between amount and TP
i. Must have personally received and benefited from amount (Field)
ii. Strict ownership isn’t exclusive test, examine surrounding circumstances about
how money was received and manner it was held in (Buckman) – consider
behaviour of TP, intention to repay funds, manner amount was held
S.3(b) – add taxable capital gains minus allowable capital losses
a. S.111(1)(a) – non-capital losses can be carried back 3 years, forward 20 years
b. S.111(1)(b) – net capital losses can be carried back 3 years, forward 20 years
c. S.111(2) – in year TP dies, net capital losses are used to offset income for year of death
and preceding year
S.3(c) – subtract deductions allowed under subdivision E (s.62 moving)
S.3(d) – deduct losses from sources (non-capital losses: office, employment, business, property)
S.3(e) – ultimate taxable income for purposes of s.2(2)
Source as a Basis for Tax Liability





S.2(1) – tax payable by persons resident in Canada – on worldwide income
S.2(3) – tax payable by non-residents for: EM and business, disposal of property in Canada
S.212(1) – 25% tax on certain payments by residents to non-residents when they move (rent,
royalties, pension, retiring allowance, interest, management fees)
S.215(1) – obligation to withhold and remit tax on behalf of non-resident
o S.215(6) – if amounts are NOT withheld, corporation/person is jointly and severally
liable for tax owing
S.249(1)(b) – taxation year – for individual it is a calendar year (year end = December 31 st)
Tax
Retiring Allowance (Taxable)



S.56(1)(a)(ii) – taxable amount received out of EE benefit plan, retirement plan or salary deferral
included in income, on or after retirement in recognition of TP’s long service
o Only applies when TP is an actual EE of the company (Schwartz)
o Severance pay is included in EI
S.248(1) – Retiring Allowance: amount received (other than pension/death benefit), for T’s
retirement from office or employment in recognition of T’s long service OR in respect of loss of
office/employment whether or not damages
Can include amounts for wrongful dismissal!!
Surrogatum Principle (Taxable)

In the case that a payment is received in substitute for another or different payment, where the
payment replaces taxable income, then the replacement will also be taxable (Tsiaprallis, London
v Thames)
TEST from Tsiaprallis
1. What was the payment intended to replace? MUST BE CLEAR;
2. Would the replaced amount have been taxable in recipient’s hands?
a. If the amount is a substitute for earning potential = non-taxable
b. Can’t apply if there is no evidentiary basis for payment (Schwartz)
c. Burden on TP to show amount wasn’t attributable to taxable payments (Schwartz)


If award is meant to compensate for future earnings, award will be taxable!
Periodic employer insurance payments WILL be taxable
Resident of Canada for Purposes of Tax Liability?
Approach







Canadian tax is based on residence and source – emphasises economic association with country
and easier to enforce (more control over source and TP)
S.2(1) – tax paid on income of every resident
S.2(2) – determines the income
S.2(3) – not taxable under s.2(1) (non-resident) but worked in a Canadian company or had active
sources of income in Canada – must file tax return as non-resident, pay tax
Residency is a factual determination – look at details of how and where they lived, income,
connections to the place (Thomson, IT Folio Residency)
o Distinction between person who has always been resident then tries to not be resident
(difficult!) and person who comes to Canada for a while then leaves (easier)
S.128.1(4) – Emigration: where a resident becomes a non-resident, subject to departure tax
o Deemed disposition at FMV of all property OTHER THAN real property, at time TP ceases
to be resident – realize CG and report and pay taxable gains on exit (IT Folio Residency)
S.128.1(1) – Immigration: becoming a resident of Canada, subject to entry tax
Ordinary Residence

S.250(3) – Ordinary Resident: everyone has a residence at all times
o Restricted meaning: residence in the ordinary course of customary mode of life,
distinguished from visiting/sojourning (Thomson)
o Resident: matter of the degree to which a person in mind, in the settled routine of TPs
life, he regularly, normally or customarily lives (not casual or uncertain) (Thomson)
o Intention is NOT relevant! (Thomson, Lee)
Tax



Determining residence is a matter of fact
o Factors to consider (Lee): Past and present habits, regularity and length of visits in the
jurisdiction asserting residence, ties within that jurisdiction, ties elsewhere, permanence
and purpose of stay abroad
Main determinates for residences: (IT Folio Residency)
o Dwelling place, spouse/CL partner, dependents location
Secondary ties: (IT Folio Residency)
o Personal property, social ties (clubs, friends, siblings), economic ties, immigration status,
medical insurance, DL, cars, seasonal dwellings, Canadian passport
Deemed Residence



S.250(1) – deemed resident of Canada throughout the entire taxation year
o (a) – sojourn for +183 days (not required to have residential ties)
o (b) – armed forces (abroad)
o (c) – public servant of Canada (EE of government abroad), resident before appointment
Sojourn = to make a temporary stay in a place, to remain or reside for a time
o Includes holidays, business trips, unexpected/unusual stays – anything overnight!
Commuting to Canada for day’s work is NOT sojourning, generally have to stay overnight (R&L
Food Distributors)
Part Year Residence

S.114 – not taxed on the portion of the year when TP started/ended residency in Canada
o Situation where the TP leaves in the middle of the year – determine when they stopped
being resident (factual inquiry)
o Take income for the whole year and then for the period of non-residency, only taxed on
portion they would be taxed for as a non-resident (income from Canadian sources)
o Use the Thomson test to determine residency

Must establish facts to show severing Canadian residency, looking to the connections to the
place (Schujahn)
o On re-establishing residency in another country, date they leave the country is the date
they become non-resident (Schujahn)
Temporary or indeterminate time away from Canada is insufficient for a long-time Canadian
resident (Reeder) – use Lee factors
o Must sever ALL ties to Canada to be treated as non-resident (Reeder)
o More difficult for Canadians to prove non-residency

Dual Residence
1.
2.
3.

Determine if there is dual residency issue – TP wants to avoid double taxation – MUST BE
DETERMINED TO BE RESIDENTS OF BOTH COUNTRIES BEFORE THIS
a. Determine if resident in Canada by any of the following:
i. S.250(1) – deemed residency
ii. S.250(3) – ordinary resident
b. Consider centre of vital interest – personal and economic ties to country
Tie Breakers – any tax treaties that exist to determine which residency prevails
a. Go through steps under the treaty
b. Pg.63-65 in Student Edition – UK and US treaties
S.250(5) – person is deemed non-resident for tax purposes where TP is a resident of another
country under a tax treaty
In order to apply tie breaker, must have found residency in both countries, THEN apply tie
breaker and that prevails (Salt)
o Adult children are social tie, not significant residential tie
o When a home is not fully available (sublet, requiring notice to move back in), residence
will be the other country – permanence is essential (Salt)
Tax
Deemed Corporate Residence


Corporation is a legal person – distinction between shareholders, CEOs and actual corporation
S.250(4) – deemed corporate residence in Canada if:
o (a) incorporated in Canada AFTER 1965; OR
o (b) incorporated in Canada BEFORE 1965 and at any time since incorporation were
resident in Canada under CL rule or did business in Canada (business operations)

Common Law Test: residence is where real business of corporation is carried on, where the
central management and control abides (Debeers)
o Central Management and control = where board of directors meets to make decisions
for corporation
o Residence is where decisions about company are being made – if following direction of
majority shareholder or another person, residence will be where that
shareholder/person lives (Debeers, Unit Construction)

Corporations can be resident in more than one country at the same time (tie breakers here as
well but different countries have different rules)
Provincial Residence




Reg. 2601 – if you reside somewhere at the end of the year, individuals income for that province
of residence is the income for the year
o You are taxed on the income in the province in which you were resident
Reg.2607 – deemed residence where there is principal place of residence
Use Ordinarily Resident Test from Thomson to determine provincial residence (Mandrusiak)
o Test of principal residence = chief, primary, most important place TP lives (Mandrusiak)
o Consider if there is a home (residence of spouse, children, extended family), not just
about the time spent in each province (Mandrusiak)
Federal government has agreement with all provinces EXCEPT Quebec to collect provincial taxes
with federal taxes so you only submit one tax return
Tax
Income from Office or Employment?
General Provisions



Both are taxed the same way
S.248(1) – Employment: position of individual in service of some other person
S.248(1) – Office: position of individual entitling them to stipend or allowance (elected or
appointed office, includes directors of companies)

S.5(1) – income for the year from office/EM is TP’s salary, wages and other remuneration,
including gratuities (bonuses, tips)
o S.5(2) – losses for the year is TPs loss, if any for the year – VERY RARE (act limits
deductions to amount in income so will be 0)

Could include wrongful dismissal claims – would be retiring allowance, see that sections

S.6 – include value of benefits and allowances:
o S.6(1)(f) – periodic payments of disability benefits are TAXABLE (Tsiaprallis, Siftar)
o

S.6(3) – payments made from ER to EE shall be deemed to be income from office or
employment under s.5
 Includes payments for allowances for personal or living expenses, directors
fees, sickness/accident/disability/income maintenance/life/health insurance
benefits, reimbursements, awards, services for EM, signing bonuses, noncompetes clauses, non-disclosures, special or remote worksite allowance,
housing loss benefit
 (a) any amount received while TP was officer or in EM of ER
 (b) on account of an obligation arising out of EM contract
o UNLESS payment can be reasonably regarded as:
 (c) consideration for accepting office/contract/EM
 (d) remuneration for services as officer or under EM K
 (e) in consideration for covenant with reference to what TP can/can’t do
before/after termination (no competition clause)
S.8 – no deductions allowed unless TP can specifically fit into exception in s.8 (except as
permitted by the section, no deductions allowed from EM)
Wiebe Door Test

Use is there is an issue between CCPC vs. PSB
o EE = CCPC
o IC = PSB

TEST for EE vs. Independent Contractor (Wiebe Door, confirmed by Sagaz)
o Consider Factors: - asking if they are in business on their own account
 ER control over work = EE
 Own tools = IC
 Opportunity for profit or risk of loss = IC
 Integration into ER’s business = EE (but not conclusive)
o Common Intention of parties to be considered (Wolf), including express intention in K
(Royal Winnipeg Ballet)
 BUT intention is NOT determinative (Royal Winnipeg Ballet), nor does it trump
realities of relationship (Connor Homes)
o Does objective reality support subjective intention of parties? (Connor Homes)
 Find subjective intent of each party, intention (Royal Winnipeg Ballet)
 Find objective reality and if that confirms subjective intent (Connor Homes)
Tax
Employee vs. Independent Contractor




Main difference is that EE is taxed at source – tax deducted from pay cheque
o S.153 – ER must deduct and remit to CRA (liable for tax if they don’t withhold and remit)
EE taxed on cash basis (amounts received and paid) vs. IC taxed on accrual basis (amounts
received/receivable and paid/payable)
EE have generally no deductions vs. IC have business deductions (if incurred to earn income,
expense will be deductible)
EE have EI vs. IC do not pay EI so no claim if they do out of work

Canada Employment Credit
o S.118(10) – %150 tax credit to recognize there are expenses associated with EM
 A x B = credit
 A is percentage or 15% (lowest marginal rate)
 B is less than 1,000 then use the actual amount (500 x 15%) OR %150 if income
is more than 1,000

Attempts to convert EE income into something else is common in order to make it capital so it
isn’t taxable (Curran) – wouldn’t work now since CG is taxable
Is TP entitled to Benefits, Reimbursement or Allowances?
INCLUSION FOR OFFICE AND EMPLOYMENT
BENEFITS RECEIVED

Look for anything received by EE from ER – will be a benefit or allowance and must be
included in income for the year (reimbursements are NOT)
o Except traveling expenses (if eligible) or special/remote worksite allowances

S.5 – “other remuneration” is taxable (includes honorary, tips, bonuses, cash – anything flowing
from ER to EE)
S.6(1)(a) – includes in income (cash and non-cash benefits) like value of board, lodging and
benefits of any kind whatever, received or enjoyed by TP or anyone NAL of TP (BROAD)
o EXCEPT: benefit (i) from contribution to TP’s ER to pension plan, group sickness or
insurance, private health plan, EI plan, life insurance
o INCLUDES: salary, wage, tips, honoraria, commissions, bonuses, gifts as compensation
o (b) – personal or living




S.6(3) - Includes payments for allowances for personal or living expenses, directors fees,
sickness/accident/disability/income maintenance/life/health insurance benefits,
reimbursements, awards, services for EM, signing bonuses, non-compete clauses, nondisclosures, special or remote worksite allowance, housing loss benefit
o Was EE paid to sign contract?
TEST is whether the benefit was conferred on TP as an EE or as a person (Savage)
TEST for what is a benefit: is it a material acquisition (more than immaterial thing or amount)
that confers economic benefit on TP and isn’t exempt then it will be included in tax – more
than de minimas benefit is taxable (Savage, Huffman, Poynton)
SEE IT-470R for CRA PRACTICES
o
o
o
If the ER benefits from the benefit rather than EE OR it is just a reimbursement, then it
won’t be taxable (Savage) – exception to taxing everything that as value and flows
between ER to EE
Benefits that reimburse EE are NOT taxable (Huffman)
Must be a measureable economic benefit (Lowe)
Tax

o
o
o
o

Something that is a material acquisition that conferred an economic benefit
may not have to be included if it is under $500 (IT-470R)
Value is FMV, determined by expert evidence (Giffen) – court will try to put a value on
whatever EE receives (not always the cost to ER)
 Something received with company logo may reduce value (Giffen)
 MINORITY view: Use common sense when valuing benefit – look at it from EE
view (Rachfalowski)
Whether TP used benefit is irrelevant, as long is it is available, it is a benefit (Richmond)
 Value should be determined on individual basis of actual use and if TP actually
wanted it, rather than just availability (Rachfalowski)
If person using the benefit is related to TP (NAL), TP must include it on tax return (eg.
Child of professor getting free tuition, professor includes it on return)
Doesn’t have to be quid pro quo exchange of goods for performance of duties, could
just be prize for taking course (Savage)
For business trips, ask if the primary purpose of the trip was business or pleasure (Lowe)
o If personal benefit was incidental to business, it will NOT be taxable (Lowe)
o Ask if the benefit is truly for ER or EE (Lowe)
IT-470R – CRA PRACTICES FOR BENEFITS

Guide for ER to determine what to put on T4s

Up to $500 of non-cash gifts/awards to NAL EE is not taxable annually (eg. Bottle of champagne)
o Long service awards aren’t taxable up to $500
o Anything over this amount will be taxable
Vacation for EE and family will be taxable benefit UNLESS EE is required to go for business
purpose (spouse is included if they help the business purpose) (Lowe)
o See business trips, under Benefits
Not taxed on work functions given for all EEs (Dunlap)
o Small immaterial items like providing coffee, tea, company t-shirts are not taxable
o Special clothing and uniforms are not taxable (Huffman)
Social or athletic club is taxable UNLESS ER gets advantage by EE using it (Rachfalowski)
o EE using ER fitness facility is not considered a taxable benefit



PERSONAL OR LIVING EXPENSES ALLOWANCE

Allowances are taxable as income from EM

Allowance: limited, arbitrary amount, that is predetermined without specific reference to any
actual expense/cost (NOT reimbursement) but generally for some specific purpose (MacDonald)
o At discretion of EE as to how to use it, NOT required to account for money or even use
all of the allowance (MacDonald)
Reimbursement (not taxed) is different from allowance (taxable) (Huffman, Pascoe)
o Reimbursements: benefits that reimburse expenses incurred by EE at the order of ER,
restores EE to pre-expense condition
o Usually an expense they wouldn’t normally have to pay (Huffman)
CRA is wary of these – if they look like extra remuneration so they will be taxable



S.6(1)(b) – All amounts received for personal/living expenses/allowance are taxable EXCEPT:
o Vehicle and travelling allowances (s.6(1)(b) includes this as listed exception)
o Special or remote worksite (s.6(6) prevails over s.6(1)(b))
Tax
VEHICLE OR TRAVELLING ALLOWANCE (EXCEPTION – NOT INCLUDED IN INCOME)


Not deemed to be a benefit/allowance of EM (if it is a reasonable allowance)
S.6(1)(b) – these expenses will be non-taxable
o (v) – applies to contract negotiation or sales (travelling salesman) – when in or out of
town, reasonable allowances for travel expenses are NOT included in income
o (vii) – applies to EE who is non-travelling salesman when out of town
 Car isn’t normally used for job, reasonable allowance for travelling is NOT
included in income (other than vehicle allowance in vii.1)
o (vii.1) – applies to non-travelling salesman when in or out of town
 Reasonable allowances for use of vehicle are NOT included
 (x) – allowance will be UNREASONABLE if the measurement of use is NOT
based solely on KM; OR
 (xi) – TP gets allowance and is reimbursed in whole or in part for use of car

Reg 7306 (s.18(1)®) – maximum deduction for vehicle allowance:
o 0.52 / km for first 5,000km (if driving in territories, ADD 0.04 / km)
o 0.46 / km for every km over 5,000km
o
If ER pays more than this OR the allowance is NOT based on amount per KM, the
excess is NOT deductible because it is not reasonable
SPECIAL OR REMOTE WORKSITE (EXCEPTION – NOT INCLUDED IN INCOME)






Not deemed to be a benefit/allowance of EM
S.6(6) – if ER pays for board, lodging, food OR allowances for special/remote worksite are NOT
taxable IF period away from principal residence is MORE THAN 36 HOURS
(a) – don’t include the amounts in income for allowance that is reasonable for:
o (a.i) – if TP has non-rented (available to TP) principal residence elsewhere AND it is
unreasonable to return to it after work; OR
o (a.ii) – TP is not reasonably expected to establish main dwelling at remote site
Special/Remote site doesn’t have to be in Canada and principal residence doesn’t have to be in
Canada (in that case, the site must be in Canada)
Special site: doesn’t have to be remote!! – Toronto could be special if normally living in Van
Remote site: different requirements, not reasonably expected to commute
o Must be Remote – if nearest established community is +80km away on the route most
direct and normally travelled (not as the bird flies) (IT-470R)
o Established Community – group of people, permanently settled, with essential services
(food, clothing stores, housing, medical assistance, education), a place you could
normally live (IT-470R)
Deductions in Computation of Income?
DEDUCTION FOR OFFICE AND EMPLOYMENT
GENERAL LIMITATION ON EM DEDUCTIONS


S.67 – no deductions in respect of outlay or expense UNLESS it was reasonable in the
circumstances
o if no allowance or reimbursement and EE pays out of pocket, can only deduct the
amount that was wholly applicable to EM/office
s.67(1) – can only deduct 50% of food/meals/entertainment OR reasonable amount thereof
(applies equally to ER and EE)
o (a) – restaurants could deduct full amount of groceries as inventory – must provide
food/beverages/entertainment as part of business, then deduction is possible
Tax
o


(f) – for ER – Xmas parties can be deducted (max 6 work parties a year) - deduct cost of
food, beverages, entertainment
S.8(1) – includes deductions for office or EM – no deductions allowed UNLESS you fit yourself
under one of these exceptions
If one person deducts the expense, someone else must include it, unless there is exemption
TRAVELLING EXPENSES

Application:
o If Travelling salesman apply: s.8(1)(f), s.8(4), s.8(10), s.67(1)
o If Transport worker apply: s.8(1)(g), s.67(1)
o If non-traveling salesman with travel expenses apply: s.8(1)(h) (only if F and G were not
used), s.8(4), s.8(10), s.67(1)
o If EE with work related travel expense apply: s.8(1)(h.1) (only if F wasn’t used)

S.8(1)(f) – applies to travelling salesman – travel and other expenses are deductible IF:
o EE pays own vehicle expenses, ordinarily required to carry on work away from ER’s place
of business, paid on commission (or related amount) AND cannot have a reasonable
allowance under s.6(1)(b)
o Expenses cannot exceed income earned

S.8(1)(l) – cannot deduct cost of yachts, golf courses, other recreational facilities (salesman can’t
deduct cost of golf tee to take client golfing)
o (l)(2) – no deduction for club membership (Rachfalowski)

s.8(10) – certificate from ER certifying that you paid all expenses, PLUS all other conditions for
the deduction must be met or there will be no deduction
o if ER gave you an allowance, they likely won’t give you the letter
o If this section applies, BE CAREFUL
Applies to deductions under (c), (f), (h), (h.1), (1.i), (1.ii), (1.iii)


s.8(1)(g) – transport workers – deduction where duties require travel for transport of goods or
people and EM requires TP to pay for expenses for food AND lodging
o Requires expenses for meals AND lodging to claim deduction, section contemplates a
longer travel time (Crawford)

S.8(1)(h) – for non-travelling salesman with travel expenses – work related travel expenses
OTHER THAN vehicle, are deductible (this section is NOT applicable if (f) or (g) is used)
o No deduction if EE got allowance that wasn’t included in income under s.6(1)(b)(v-vii)
o Policy: if you got tax free allowance, should be able to deduct it here
o To be eligible, travel must be made for ER’s benefit, on their behalf or at their direction,
must be made as a consequence of EM (Martyn) – must be while ON DUTY, away from
place of EM, in course of EM (Martyn)
o Travelling to/from home is NOT deductible (Hogg) – just personal consumption choice,
even if there are security concerns (Hogg)
o Travelling salesmen MAY be able to claim expenses here if they don’t fit under (g)

S.8(1)(h.1) – work related travel expenses are deduction (unless (f) is used or get vehicle
allowance not included in income under s.6(1)(b))

S.8(4) – meals are NOT deduction unless consumed while TP was required to be away for
minimum of 12 hours from work – essentially can’t be coming home at night (Crawford)
LEGAL EXPENSES

S.8(1)(b) – amounts paid for legal expenses by EE to collect/establish the right to salary or wages
is deductible (includes right to anything that is considered EM income
Tax


Do not have to win the action to claim the deduction (IT-99R)
S.60(o.1)(i)(b) – parallel deduction for retiring allowance
o If sue and recover, amount is included under s.56(1)(a)(ii) as retiring allowance
o THEN claim deduction under s.60(o.1)(i)(b)

NOTE: there is no provision limiting the deduction here, so possibility that deduction could be
more than what you receive

ER would deduct these as an expense of doing business
PROFESSIONAL OR UNION DUES – COST OF PERFORMING DUTIES


S.8(1)(i)(i) – deduction for dues and expenses in performing duties, must be necessary to
maintain professional status that are recognized and maintained by statute (Swingle)
o S.8(10) applies
Must be direct relationship between membership in professional society and professional status,
essentially no membership = no status (Swingle)
COST OF SUPPLIES


S.8(1)(i)(iii) – cost of supplies consumed directly in performance of duties in office/EM are
deductible (Huffman)
o NOTE: better to argue for reimbursement than for deduction, in Huffman situation
S.8(1)(i)(ii) – cost of assistant or office rent is deductible if payment required by EM contract
HOME OFFICE EXPENSES


o
S.8(13)(a) – workspace in the home - No amount is deduction in respect of any part of where
person resides EXCEPT (1) where office is principle location of duties OR (2) is used exclusively
for earning income AND used regularly to conduct meetings with customers/clients in the
ordinary course of business
Very restrictive and difficult to meet
o (b) – if test in (a) is met, TP can deduct amounts for anything carried out at home office
BUT amount cannot exceed income from office/EM (NO LOSS)
NOTE: more on this under income from business
Tax
Income from Business or Property?
Income from Business
GENERAL




Business: anything that occupies the time, attention and labour of man (or woman or
corporation) (Smith v Anderson) – requires organized ongoing, commercial activity with object of
earning a profit (active)
o Business and Property Income: Calculation is essentially the same for individuals
o S.248(1) – very broad, includes adventure or concern in nature of trade, excludes office
and employment
S.9(1) – TPs income for the year for business/property is TP’s profit from business/property
o Net profit = revenue – expenses
o Definition of profit is question of law NOT general accounting principles (Buckman)
S.9(2) – loss from business/property is the loss
o Revenue – expenses WHEN expenses are greater than revenue
Uses accrual method (include amounts when paid/payable and received/receivable)
CANADIAN CONTROLLED PRIVATE CORPORATIONS (CCPC)

To be eligible:
o Active business carried on
o Corporation that is resident in Canada; (eg. if incorporated under BC Incorporation Act)
o Shares are NOT listed on stock exchange (private); AND
o It is not controlled by non-residents or by public corporation of combination of the 2
(must have minimum 25% Canadian resident shareholders) (R&L Food Distributors –
wanted to be deemed residents, sojourning, for the tax break as CCPC)

Meet this and CCPC will be eligible for small business deduction – 13.5% (11% federal, 2.5% BC)
on first 500,000 of profit for the year
o S.125(7) – income must be from an active business carried on by a corporation
 Business carried on by corporation OTHER THAN SIB or PSB and includes
adventure or concern in nature of trade
o If not eligible, the tax is almost double! – corporations want to be CCPC
 Incentive to have business within Canada, encourages growth of small business
(keep larger portion of initial earnings)

EXCLUDES Personal services business and specified investment business
PERSONAL SERVICES BUSINESS (PSB)

Not actually a business – just an EE


No tax break for PSB – 38% tax rate
Definition: business of providing services where:
o (a) An individual performs services on behalf of corporation; OR
o (b) Any person related to incorporated EE (non-arms length) is a specified shareholder
(owns +10% shares); AND
 Specified shareholder and incorporated EE would be reasonably regarded as
officer/EE of person to who the services are being provided – use Wiebe Door!
 Definition: Specified shareholder – owns +10% of shares
Tax

Any stock that is owned by related person (NAL), is considered to be
owned by TP – so all members would be SS if they have over 10%
when those shares are grouped together
o
o
o





UNLESS:
(c) corporation has more than 5 full time EEs throughout the year; OR
(d) amount paid to the corporation was received from corporation with which it was
associated
TEST: - if you pass, then = PSB and no tax break
o Would incorporated EE be reasonably regarded as EE using Wiebe Door Test? – to not
be a PSB, want to find TP is an IC under that test
o If individual would be EE BUT FOR the corporation, then it is PSB
Would TP be an EE if the corporation wasn’t there? – if yes = PSB, if no = CCPC (if eligible)
Policy: anti-avoidance to prevent EE’s from incorporating to take advantage of business
deductions and taxation
o Ensures only true CCPC’s get the tax break
Ralphco Problem – essentially trying to around being EE, want to be IC (reduce tax liability,
defer portion of individual taxes to the corporation)
S.18(1) – restrictions on deductions for income from PSB, no deduction for salary for
incorporation EE (Negate advantage of using corporation)
SPECIFIED INVESTMENT BUSINESS (SIB)




No tax break for PSB – 38% tax rate
Definition: business carried on by corporation with principle purpose of deriving income from
property (income from interest, dividend, rents or royalties) – passive income, holds investments
o Except where there are more than 5 EEs
Example: rich persons invests money and claims it is a CCPC to get tax break = SIB
Rationale: don’t want wealthy people to invest money and do nothing (no active business) to get
tax break, avoiding progressive tax (low rate is to encourage entrepreneurs)
BUSINESS VS. PERSONAL ENDEAVOUR – TEST

Reasonable Expectation of Profit Test (Stewart)
o REOP is an old test – now look to see what TP is doing, if there is intention to earn profit
or is it something they do for fun? (business vs. hobby)
o REOP is sufficient to determine source, but NOT necessary!
o Not about immediate profit – may be losses in first years of business, can still have
source even if business was never going to be successful (Stewart)

1.
TEST: (Stewart)
Is the activity undertaken in pursuit of profit or is it personal? (general assessment)
a. If NO personal element and carried on in commercial manner, go to Q2
b. If could be personal element, determine if activity is being carried on in a sufficiently
commercial manner (badges of trade) – objective evidence of subjective intention to
earn a profit
i. Consider: profit/loss in the past, training, intended course of action, capability
of venture to show a profit (Moldowan)
If no personal element, is source of income from business OR property? (specific assessment)
a. Look to definitions of business and property: active vs. passive income?
2.
Tax
GAMBLING OR WINDFALLS



A bet is an irrational agreement, not productive activity (Graham) – not capable of being source
o Will not tax a habit, doesn’t fall under business definition (Graham)
o Money made on casual bets is NOT assessable, BUT if you are insider/expert with
element of professionalism or knowledge that increase odds of winning it could be a
source (Walker)
Distinguish between business and hobby of gambling – if managing and minimizing risk in
gambling (like practicing for pool, system to win), could be income (Luprypa)
For lottery, determine objectively if there was a system to minimize the risk and make a profit
o If it was just pure luck, it will not be taxable even if you do it a lot (LeBlanc)
o *O’Brien thinks if they applied Stewart they would have seen a commerciality
ACQUIRING CAPITAL TO EARN INCOME





When person habitually does a thing capable of producing a profit they are carrying on
trade/business even if the activities are separate from their normal occupation (eg. Dentist
selling real estate)
o If the thing is infrequent or only once, could still be a business depending on how it was
carried out – would be ACNT
Consider if the activity was:
o Investment (intention to have realization of investment)
o ACNT (buy with the intention of selling ASAP)
o Ongoing business (in the business of buying and selling that subject matter)
Must distinguish between capital transaction and ACNT (IT-218R)
ACNT – profit is taxed as income from business (commodities, maybe land)
Capital transaction – taxed at 50% of the profit (shares, maybe land)
ADVENTURE OR CONCERN IN THE NATURE TRADE - TEST



TEST: when TP acquires capital property to earn income – determine if it is capital or business
(ACNT), must look at intention of TP (Taylor)
o Nature of trade and quantity: look at surrounding circumstances, characteristics that
would exclude possibility that the sale was realization of investment or capital
o Manner of dealing: carried out in the same way a trader in the business would operate
Finding of ACNT: profits will be taxed as a business
Finding of CT: profits will be taxed at 50% (argue for this usually, less tax)
o Irrigation Industries is only one to be found CT from cases – not in normal way a trader
would buy it (O’Brien thinks its ACNT though)
FACTORS (IT-218R, IT-459)

Factors to distinguish between capital transaction and adventure or concern in nature of trade:
o Intention of TP at time of purchase (CRITICAL)
 Buying with intention of selling as soon as possible is ACNT (Regal Heights)
 If it is found as an investment (shares), will be CT (even investments are made
with view of profit) (Irrigation Industries)
o One intention or secondary intention
 Another secondary intention at time of purchase (Regal Heights) will likely be
considered ACNT especially for raw land
 Must have 2nd intention at time of purchase as operating motivation to buy
property and setting it at a profit in order to be ACNT (SK Wheat Pool)
 Secondary intention of earning profit on flip is sufficient to be found
ACNT, if requirement of SK Wheat Pool is met
Tax
o
o
o
o
o
o
o
o
o
o
Nature of property
 Property that doesn’t yield income/personal enjoyment is more likely to have
been acquired for purposes of sale (Taylor)
 Strong presumption that shares, even if they are sold quickly are capital
transaction (Irrigation Industries) – different from ongoing business of
buying/selling shares (Arcorp)
Feasibility of intention
 Is the intention actually able to be carried out by TP? (Regal Heights)
 Look at realistic-ness of the intention for that particular TP
Extent to which TP carries out primary intention
 How much work had they done towards the primary intention before selling
(Regal Heights)
Evidence of change of intention
 Evidence that at certain stage the 1st intention is abandoned and 2nd intention
takes over (Regal Heights)
Look at who TP is
 Ability to carry out stated intention (money, experience) (Regal Heights)
How TP bought the thing
 Did they buy with a lot of borrowed money?
 Method of financing isn’t sufficient indicator of intention (Irrigation Industries)
Length of time property was held
 Depends on circumstances, look at what they did with asset before selling
Whether TP made it alone or with others
Reasons for selling
 May be some explanation for selling (unsolicited offer that they couldn’t say no
to, sudden emergency), would prevent finding of capital transaction
Extent of TP’s previous dealings and subsequent dealings
 Determine if the same sort of property has been sold in succession over the
years or several sales at around the same time (presumption that there has
been dealing in respect of property)
 If infrequent, then it is a question of if the activity was ACNT
IT-459




Person can carry on more than one business
Even if you have activity that doesn’t amount to carrying on a business, it is still not CT
Summarizes Taylor and lays out factors
Must determine if there were more intentions for the purchase or if it was just to hold it and
then sell immediately
Income from Property
GENERAL

Property: passive in nature, income derived principally from ownership, owner doesn’t have to
devote time and energy to earn the income
o Real or personal, corporeal or incorporeal, includes a right of any kind, chose in action,
money (unless contrary intention is evident)
o Includes rents, royalties, dividends, interest
o S.248(1) – very broadly defined
o If income requires significant amount of activity/trading, likely to be from business
 For rental income, the level of service provided will determine if the income is
property or business

S.9(1) – TPs income for the year for business/property is TP’s profit from business/property
o Net profit = revenue – expenses
o Definition of profit is question of law NOT general accounting principles (Buckman)
Tax


S.9(2) – loss from business/property is the loss
o Revenue – expenses WHEN expenses are greater than revenue
S.9(3) – income/loss from property DO NOT include capital gain/loss from disposition of property
o Differentiate between income and capital gain from disposition
INTEREST

Consider the issues:
o Who is the lender? Who is the borrower? (who is receiving/paying interest)
o What constitutes interest? (accruing daily?)
o When does the lender include the amount? (timing issue)
o Is it blended? What part is reasonably regarded as interest? (blended payments)

Interest from debt obligations: any type of loan or advance of money where there is
requirement to be repaid (bank accounts, term deposits, bonds, late payment charges) and
interest accrues daily (rate that can be calculated daily) (Barfried)
o Interest income is included for party that RECEIVES the interest, NOT person paying it
o Borrower may be able to deduct interest paid in certain circumstances

S.12(1)(c) – include interest in income when it is received or receivable (depending on how TP
calculates their income)
S.12(3) – corporations must report interest accrued at each year end, even when not received
(accrual rule)
S.12(4) – individuals with investment contracts include interest received from contract on
anniversary of contract – investment contract includes all debt obligations held by individuals
o S.12(11) – anniversary day defined: contract made on June 1st, anniversary is Mar 31st
o Don’t want TP to defer or accelerate interest payments, control



S.16(1)(a) – blended payments: where amount is blended interest and principle, include the part
that can be reasonably regarded as interest (CRA will assess the blend, regardless of contract)
o Then s.12(1)(c) applies and timing from (3) and (4) kicks in
o Example: mortgage payments
o Will determine what part of transaction can be reasonably regarded as interest based
on commercial realities (Groulx) – if purchase price more than FMV, assume it is
blended payment
o Rationale: people want full payment or if it is delayed, then interest is paid in
compensation for delaying payment (Groulx)

S.20(1)(c) – borrower may be able to deduct interest if they fall within rules (under deductions)
RENT AND ROYALTIES




Rent: fixed periodic, payments for use of tangible property for given time
o Due on the 1st – that amount is receivable on the 1st (even if unpaid)
Royalties: right to use, amount paid to use intangible property (intellectual property, license
fees, patent, copyright), based on degree of use
S.12(1)(g) – payments based on production or use of property: derived by reason of ownership,
amount is depended on the use of or production from property (real or personal) or instalments
in sale price (Spooner)
o If all legal rights/interest were transferred then it is a sale
o If some of rights transferred short of title, then amount is rent or royalty
If sale of capital asset but entitled to after-sale share of profits these are royalties, subject to tax
(Wain-Town Gas and Oil)
Tax
DIVIDENDS




Distributions (usually cash) by corporations of after-tax profits to share holders
o Received, NOT receivable
S.12(1)(j) – includes dividends from resident corporations
S.12(1)(k) – includes any amount to be included as required by (1), includes foreign corporations
Value of the dividend is included in income
Can TP Deduct anything from Business or Property?
DEDUCTION FOR BUSINESS OR PROPERTY
GENERAL PROVISIONS

Any expense made for the business could be deductible based on the test
TEST: to determine if there is a deductible expense (Royal Trust, Imperial Oil)
1.
2.
Determine if outlay/expense was made/incurred in accordance with ordinary principles of
commercial trading or well accepted principles of business practice AND incurred for incomegaining business purpose
a. Must be running expenses incurred for purpose of producing income from business or
expenses that are ordinary risks of running the business (Imperial Oil)
If NOT, no deduction – if YES, it will be deductible UNLESS it falls outside exceptions

S.9(1) – net profit after deduction of all allowable expenses
o Expenses incurred for purpose of earning income from property, determined by general
business and commercial principles UNLESS overridden by Act or case law (Daley)
o Expenses: regular, ongoing expenses, integral to running of business (paid/payable)
 One time fees are NOT deductible (Daley)
 Using a vehicle could count as well to the extent it is incurred to earn income
(separate from personal vehicle use)

Do NOT have to actually earn income from the expense to be able to deduct it, as long as the
purpose was to produce income from business (Imperial Oil)

S.12 – specific inclusions and timing for inclusion (things that might not be included in normal
business practice) – received and receivable will be included
S.20 – list of specific deductions allowed (might not be allowed under GAAP but allowed in tax)
Capital Cost Allowance – when you buy a capital asset with enduring value, actual purchase price
of the asset is NOT deductible
o S.20(1)(a) – can deduct portion of purchase price each year as it depreciates



S.18 – restrictions on deductions
o S.18(1)(a) – outlay or expense is only deductible to the extent it was made for purpose
of gaining/producing income – in process of earning income (Imperial Oil, Royal Trust)
o (b) – no deduction for outlay of capital expense
o (h) – personal or living expenses
o (l) – no deductions for golf, fishing lodge expenses unless you own it
o (p) – personal services business
o (r) – what ER can deduct when they pay allowance to EE

S.67(1) – can deduct a reasonable amount (lesser of the actual expense or reasonable amount)
o NO deduction allowed if it was unreasonable in the circumstances
o Exempts moving expenses under s.62
Tax
PERSONAL OR LIVING EXPENSES

TEST:
1.
2.

S.18(1)(h) – NO deduction for personal or living expenses OTHER than travel expenses incurred
while away from home in course of carrying on business
Is the deduction ordinarily allowed as a business expense by accountants and business people?
(Symes, Leduc)
Would the need exist apart from the business?
a. If need exists in absence of business, then the expense would be personal (Benton)
Commuting to place of business – same as for EE, must be in the course of business, commuting
to and from work is NOT deductible (Henry)
MOVING EXPENSES

For income from business OR employment – deduction when TP moves for EM or start business
o Doesn’t apply to income from property (can get that income anywhere, passive)
o Only deduction under 3(c)

S.62(1) – deduction from income expenses for moving that was: (business/EM)
o (a) not paid by ER
o (b) not included in previous years
o (c) total doesn’t exceed amount earned from EM or business at new location
o (d) includes all reimbursements and allowances given by ER in respect of expense

S.62(3) – allowable expenses to deduct include: (must be reasonable)
o (a) – travel costs, food and lodging
 NOT limited by 50% rule in s.67.1(1), meals are fully deductible for that time
o (b) – storage/transport of goods
o (c) – meals and lodging up to 15 days if near old/new residence
 NOT limited by 50% rule in s.67.1(1), meals are fully deductible for that time
o (d) – cancelling old lease
o (e) – costs of selling old residence
o (f) – legal fees and transfer taxes for new property
o (g) – interest, insurance, utilities, taxes for old place up to $5,000 if residence is left
empty or for sale
o (h) – revision of legal documents to reflect new address, replacing DL, vehicle permits
(doesn’t include car insurance costs), disconnecting/connecting utilities, NOT cost of
acquiring new residence (other than (f) allows)

S.62(2) – student moves – no requirement to be within Canada
o Only available to the extent you have scholarship/bursary at new university – NOW
moves are exempt and scholarships are tax free instead
o S.56(n) in other sources – scholarship amount included to extent it exceeds exemption
TEST:
1.
2.

Does TP meet definition of “eligible relocation” under s.248(1)?
a. Relocation to carry on business or by employed within Canada OR full time postsecondary student
b. Distance must be 40km difference between old and new (shortest normally travelled
route) – significant distance
If met, THEN TP can deduct moving expenses to extent they weren’t paid by ER (IT-470R)
a. If ER reimburses you, you cannot deduct
Generous approach to moving expenses – no strict time limit, latitude to allow people to find
work and then deduct expenses, encourage people to find work
Tax
o
o
o
o
o
o
Beyette – waited 5 years to move after getting job, then moved and was allowed to
deduct the moving expense
Beaudoin – waited 8 years to move, allowed to deduct
Abrahamsen – moved, then found job and allowed to deduct expenses
Templeton – new residence must be at least 40km close to new work location than the
old residence – if you can show good reason to move closer to economic centre, might
be able to deduct moving expenses
Grill – EM and work location remained the same and moved closer, deducted
Gelinas – department/position in hospital changed (part time to full time), moved 40 km
closer and allowed to deduct
VEHICLE EXPENSES

S.18(1)(r) – ER cannot deduct vehicle expenses EXCEPT for a reasonable amount given as an
allowance to EE for use of car (would be included in income) (Reg.7306)
HOME OFFICE EXPENSES






S.18(12)(a) – no deduction for income from business in respect to any part of home office
EXCEPT to extent the office is either:
o Principle location of duties; OR
o Used exclusively for earning income from business AND used on regular basis for
meeting customers/clients in respect of business
S.18(12)(b) – deduction cannot exceed profit from business
S.18(12)(c) – losses carried forward until business is profitable and deductions can be used
Travel between home office and place of EM may be deductible if home office is primary work
location (McCreath, Cumming)
If it counts, can deduct a proportionate amount of the expenses (25% used as home office, can
deduct 25% of home expenses)
S.8(1)(i)(ii) – cost of assistant or office rent is deductible if payment required by EM contract
DEDUCTION OF INTEREST EXPENSE

Deduction for the person PAYING the interest (in contrast to Interest from Property as a source
of income for TP)


Must have been incurred for purpose of earning income from business or property
S.18(1)(b) – restriction on deduction of interest: no deduction for outlay to acquire capital assets
(assets that would have enduring value for business)
S.20(1)(c)(i) – interest paid/payable on money borrowed for purpose of earning profit from
business or property is deductible
o Purpose doesn’t have to be bona fide, can just be ancillary
o TP is entitled to organize affairs to limit liability (Singleton) as long as it doesn’t amount
to tax evasion

TEST: Bronfman – fit within this criteria, and have goal to generate CG, interest deduction will be allowed
1. Eligible use: income earning purpose – purpose of earning profit from business or property OR to
acquire property to earn income from
a. Income requirement means revenue, doesn’t have to be profit, just REVENUE (Ludco)
b. If multiple uses of funds, as long as one of the purposes is to earn income, that is
sufficient (Ludco)
2. Direct use: direct link between borrowed money and use it was actually put to
a. Not about the purpose of borrowing, it is the ACTUAL use (Attaie)
3. Current use: use can change over time, courts look at the use the money is being put to at the
moment of litigation
Tax
Elements of s.20(1)(c): Singleton
1. Amount must be paid or payable in year in which TP is trying to deduct it in
2. Must be paid pursuant to legal obligation to pay interest on borrowed money
3. Borrowed money must be used for purpose of earning income from business or property (TP’s
purpose in using the money, not in borrowing) – direct link between funds and eligible use
4. Amount must be reasonable in reference to #1-3
CURRENT VS. CAPITAL EXPENSE






S.18(1)(b) – NO deduction for outlay or expense on account of capital – exchanging capital for an
asset that is a capital asset (no revenue, just converting money)
Capital expense: things that were significantly different from before and add enduring value to
the property
To determine if it is a current or capital expense: ask whether the expenditure provides an
enduring benefit to business or property source (British Insulated)
o Difficult to reconcile – courts have done different things, JUST MAKE ARGUMENTS
o No set test for improvement of assets – depends on what TP is doing, purpose of repair
or change (Gold Bar)
Amount of expenditure is NOT determinative of whether it is repair or replacement (current or
capital) (Canada Steamship)
o Repairs or maintenance of significant expense can still be current expense – look at TYPE
of expense (Canada Steamship)
o If it there is repair/replacement that is so substantial that it makes the thing essentially
different from before and constitutes an improvement, would be a capital outlay
(Shabro, Gold Bar)
If found to be capital expense: NO deduction
If found to be current expense: deduction allowed for income from business or property
DEPRECIABLE PROPERTY AND CAPITAL COST ALLOWANCE





Depreciation: loss in value of certain assets, attributable to use in income-earning process
S.54 – Depreciable property: not helpful definition, can claim deduction on depreciable property
(qualifies as a type of capital property)
o Property acquired by TP for use in business/property, provides enduring advantage or
benefit, not bought/sold as inventory, used in source to earn income
s.248(1) – depreciable property: not helpful definition
S.18(1)(a) – no deduction from business/property except to extent an expense is used to earn
income from business or property
o (b) – no deductions for capital outlays
S.20(1) – allows specific deductions notwithstanding s.18
o (a) – deduct an amount to reflect depreciation of capital assets for business and
property (see Regs for details)
o Deduction = Capital Cost Allowance: tax term for depreciation of assets and recognizes
that assets used to earn income, the longer you own/use them, the less valuable they
are (wear and tear) – depreciation is a cost of doing business
 Capital Cost = amount paid to acquire the property (purchase price including
taxes, expenses)
o Deduction is proportion of cost each year (will never be $0)
o DISTINCT FROM REPAIRS (see Capital vs. Current Expenditures)

Policy: incentive to invest in assets because of available deduction – against neutrality by
influencing TP decisions (O’Brien thinks neutrality is a myth – Act is policy tool)
o 1987: rate for buildings from 10% to 4%, less investments in apartments resulted

Reg.1100(1) – provides rates for s.20(1)(a), depends on type of property
Tax
o
o
Group like assets together (all assets from 1 class totalled together), then apply rate to
get the deduction
 Class 1 = 4%; Class 2 = 6%; Class 3 = 5%; Class 4 = 6%; Class 5 = 10%; Class 6 =
10%; Class 7 = 15%; Class 8 = 20% (default)
Policy: Approximates life of the type of property in that class (longer the life, smaller the
percentage, would depreciate slower)
 If listed in class, seen as capital asset so replacement would be capital outlay,
not a repair (Canada Steamships, boiler)

Reg.1101(1) – each business must compute deduction by CLASS of property, not individual asset
o Keep each business sources separate

Reg.1102(1) – exclusions, lists what is NOT deduction
o (a) – something used up in the process of business, consumed in course of business that
would be deductible (expenses deductible elsewhere)
o (b) – inventory
o (c) – property not acquired for business/property purpose

Reg.1102(2) – land is NOT depreciable property – building ON the land is depreciable property
but the land itself is not (would have to separate value of building from land)
Undepreciated Capital Costs (ucc) and Half Year Rule
See example on pg.508 – buses and buildings

S.13(21) – undepreciated capital costs (UCC): determines amount to apply rate in Reg.1100(1)
o UCC = (A + B) – (E + F)
o A = total cost of all assets in the class (historical, cumulative)
o B = total recapture from previous years (see description of recapture)
o E = all CCA ever claimed for class (add each years deduction together)
o F = proceeds of disposition of asset in class up to original capital cost (NOT above
original cost, or that would be recapture/CG)

Reg.1100(2) – half year rule: if you acquire new assets in the year, TP can only deduct half of
what they would otherwise be able to deduct in the year, limits deduction
o Applies no matter when you bought (January or November) – can be unfair but prevents
TP from buying in December and claiming a full years deduction
o Formula: ½ (cost of asset – POD of things sold from the class that year)
 If POD of assets sold is higher than cost of new property, rule does NOT apply
CCA = UCC (- ½ year rule if applicable) x Rate%
Terminal loss and Recapture - CCA

S.20(16) – Terminal Loss: when asset depreciates faster than you are allowed to claim CCA
deduction and you empty the class (no more property in class) – business ending, all assets have
been sold/disposed of and there is still value in class for UCC
o If at year end (A+B) exceeds (E+F), there is terminal loss and it must be deducted
(cannot carry this forward, use in same year as last asset disposed of)
o Positive UCC + no assets/class empty = claim as terminal loss (mandatory deduction)
 If loss, it is claimed as a deduction in income from business

S.13(1) – Recapture is income from business/property – B in the calculation
o When you sell an asset for more than current value based on depreciation
 Buy for 70, depreciates 20, worth 50, sell for 60, recapture is 10
 Only up to original cost!
o When you sell an asset for more than original cost: CG!
o Will be an inclusion for income from business
Tax

Policy: fixed rate doesn’t always reflect reality
POLICY FOR DENYING CERTAIN DEDUCTIONS


Deductions under s.18(1)(l) for memberships in clubs and s.67.1 for deductions for food
o It would be too generous to allow deductions for entire amounts
Will deny certain expenses even if they were made for purpose of earning income for general
public policy reasons
o BC Eggs – fine for over production and tried to deduct it, appealed to SCC – business
decision to over produce and Egg Board had power to impose fine
Illegal Business Expenses

S.18(1)(a) – illegal business expenses are deductible IF you can PROVE them expenses through
receipts (Eldridge)
Bribery and Fines


S.67.5 – bribery of certain officials is not deductible
S.67.6 – fines and penalties are not deductible
Tax
Is there a Capital Gain or Loss?
General Provisions

To apply this section, there must be a disposition of property!! (either deemed on emigration
or immigration OR actual disposition)

Capital Gain or Loss: increase/decrease in value of property from time of acquisition to time of
disposition, will be realized when capital property is disposed of
o Crop/fruit = income
o Land/tree = capital
o Distinguish income from capital!
S.3(b) – includes taxable capital gains and allowable capital losses in calculation
o [ CG from disposition of property OTHER than LPP ] + [ taxable net gain for year from
disposition of LPP ] – [ allowable CL from disposition OTHER than LPP ] = net CG





S.39(1)(a) – capital gains from disposition of ANY property (that is NOT part of source of income)
S.39(1)(b) – capital losses from disposition of ANY property (that is NOT part of source of income)
o S.39(1)(b)(i) – exception for depreciable property
Include the gain or loss under s.3(b) UNLESS it is included in income source

S.40(1)(a) – calculation of CG = POD – ACB (+expenses)
o POD is deemed to be FMV at time of sale
o ACB is what TP originally paid for it
S.40(1)(b) – calculation of CL = POD – ACB (+expenses) = negative number


S.38(a) – taxable CG is ½ of TOTAL CG
S.38(b) – allowable CL is ½ of total CL

S.111(1)(a) – Carry Forward/Back of Non-Capital Losses: can be carried back 3 years and carried
forward 20 years, set off against non-capital gains (gains from sources)
o If loss in 2015, can carry back for 2014, 2013, 2012 and carry forward to 2034
S.111(1)(b) – Carry Forward/Back of NET CL: can be carried back 3 years and carried forward
indefinitely BUT only set off against CG (not other income)
o Net = taxable CG – allowable losses


S.111(2)(a) – DEATH: when TP dies with outstanding Net CL, they become non-capital losses, can
be used to offset non-capital gains (gains from sources) in year of death and preceding year
o Deemed disposition at FMV or rollover to spouse!
o Policy: allows estate to minimize taxable CG and use up CL
o Doesn’t talk about losses from other sources in s.56 (pensions, retirement allowance if
you sue to get it and legal costs were more)
Capital Gain - Definition

Profit from sale of property or investment

ACB: Adjusted Cost Base = purchase price
o What TP actually paid for property
o Includes expenses related to acquisition (relator commission, legal, accounting,
engineering and other fees incurred to acquire property) (IT-285R2)

POD: Proceeds of Disposition = sale price of the property (usually FMV)
o Amount you receive (or what CRA thinks you received) when you dispose of property
o Can sell for over FMV BUT if it is under FMV, it will be deemed FMV for tax
o S.54(a-f) – includes price of property, compensation for stolen, destroyed, expropriated,
damaged, injuriously affected property, any amount payable in respect of damage
Tax




Bellingham – house was expropriated
Broad meaning: If TP ceases to be owner by operation of law, that is disposition
Not required to be acquisition – property can just cease to exist (cancelling or
redeeming, debt is paid off or settled and debt disappears)
Disposition: s.248(1)
o (a) – any transaction or event entitling TP to POD of property
o (b)(i) – any transaction where property is share, bond, debenture, note, certificate,
mortgage, agreement of sale and property is redeemed in whole or in part OR is
cancelled
o DOES NOT INCLUDE
o (e) – transfer where there is no change in beneficial ownership
o (j) – transfer of property for purpose only of securing debt/loan or transfer for purpose
of returning property used as security
o (l) – issue of a bond, debenture, note, certificate, mortgage
o (m) – corporation with share or stock or any other transaction that would be disposition
by corporation of share or stock
Immigration and Emigration – Deemed Disposition of Property

S.128(1)(b) – becoming a resident: deemed to have disposed of all OTHER THAN taxable
Canadian property (real property in Canada and shares of corporations that derive their value
from real property in canada) properties for FMV at time immediately before becoming resident
o (c) – deemed to have acquired properties at FMV and this becomes ACB – step up!
o Exception for taxable Canadian property – no deemed disposition

S.128(4) – ceasing to be a resident: subject to departure tax, property is deemed disposed of at
FMV and tax is payable on any unrealized gains (issues here!! No proceeds to pay the tax with)
o (b) – deemed to have disposed of each property owned immediately before leaving at
FMV (except for real property in Canada)
o (c) – deemed acquisition at FMV

NOTE: remember principal residence exemption if principal residence disposed of! – no tax
Policy for Capital Gains

Carter Commission: said CG should be taxed 100% - government was afraid of potential drop in
stock market (everyone would sell) before imposing this so only imposed tax on 50%
o Different countries do different things – policy decision for government

Capital Gains based on Tax Criteria: CG fails on all requirements
o Equity – people who earn the same should be taxed the same, people with more
income should be taxed proportionally more than people with less
 Wealthy people have the most to gain here, have the most capital and this is
preferentially taxed
 Poor people don’t have capital to have CG from
o Neutrality – should distort economic choices as little as possible
 People are enticed by tax rules and preferential treatment for CG – buy
something with no possibility for income and sell for gain
 Choose to make CG instead of income – it is distorting choices
o Certainty – should know what is taxable and deductible, know consequences of
decisions in advance
 Huge source of dispute as to whether it is CG or income – litigation because
taxation of it is uncertain
 If there is loss, argue it is trading loss so they deduct all of it as a business
expense but if there is a gain, argue it is CG so they get preferential taxation
o Exacerbates inequality by preferencing one type of income over others
Tax

CG Preferential Treatment:
o Lower effective tax rate – generally buy and hold for a period to sell, inflation
recognizes that the price disposed of reflects the time it was held (shouldn’t be gain at
all, just depreciation of currency)
o Not taxed until realized – no taxation until disposed of so there is ability to decide
timing and match CG and CL within a year so no tax
 Ability to organize TP affairs
o Lifetime exemption – certain property has no CG, not studied here
Lottery Winnings


S.40(2)(f) – gain or loss from buying lottery tickets or wining lottery is NIL
S.52(4) – property acquired as prize in connection with lottery is deemed to be acquired at FMV
o Example: PNE prize house is acquired at FMV, not amount you paid for ticket
Partial Disposition and Identical Properties

S.43(1) – partial disposition: ACB of the part disposed of is deemed to be a reasonable amount of
apportioned of the whole
o Proportional based on value of the whole piece of property and apportion how much
value the part disposed of is

S.47(1) – identical properties: overall ACB becomes the AVERAGE of the total combined ACB’s
for each property
o Applies to stocks, shares, mutual funds, trust units (same rights and restrictions
attached to property) – can never have 2 identical pieces of land/real property
o Can be bought at different times for different prices – TP shouldn’t be able to pick which
ACB suits them best for disposition purposes
o Find total amount spent on the property altogether DIVIDE by total number of shares
owned at the time EQUALS ACB per share
Non-Arms Length and Related Persons


S.251(1) – Non-Arms Length
o (a) – related persons are deemed to not deal with each other at arm’s length, even if the
interests conflict
o (c) – it is question of fact as to whether persons are related
Unrelated persons are NAL when they have a common mind OR act in concert without separate
interests – deemed to be NAL

S.251(2) – definition of “related persons”
o (a) – individuals connected by blood relationship, marriage or CL partnership do not deal
at arms length (includes adoption
o s.251(6)(a) – child, sibling
 (b) – spouse or in-laws, (c) – CL spouse, (d) – adopted child
o Excluded: aunt, uncle, nieces, nephews, cousins
o (b) – corporation and
 (i) – person who controls the corporation if it is controlled by 1 person
 (ii) – a person who is a member of related group that controls corporation
(family owned corporation), OR
 (iii) – any person related to person described in (i) and (ii) (related to family
owning the corporation)
o (c) – any 2 corporations if they are controlled by the same person or group of persons

s.248(1) – CL partner: person who cohabits in conjugal relationship with TP
o (a) – cohabited for 12 month period = CL spouses for tax purposes
o (b) – person who cohabits with TP and have child together are immediately CP spouses
o Live apart for 90 days and the CL partnership is ended
Tax
GIFTS AND SALES BELOW FMV TO NON-ARMS LENGTH PERSON

S.69(1) – transferring things between people below or above FMV or as gifts (except as expressly
provided for otherwise in the Act, eg. Spouses)
o (a) – TP received property from NAL person and paid MORE than FMV = cost is FMV,
NOT what you paid – amount is adjusted down
 Person who sold it to you has POD as ACTUAL amount sold for
o
(b) – TP disposed of anything to person NAL for nothing OR less than FMV OR as gift,
recipient will be deemed to have received POD of FMV (not at nothing, keeps value)
 if sold for less than FMV, deemed POD = FMV
 Giver of gift realizes CG/CL
o
(c) – TP received property as a gift, bequest or inheritance (TP pays nothing), TP is
deemed to have acquired it at FMV
 No consideration, through deed of gift
 Recipient gets ACB as FMV
Disposition on Death


S.70(5)(a) – deemed to have disposed of property immediately before death at FMV, realize CG
o (b) – deemed to be acquired by beneficiary at ACB of FMV immediately before death
s.70(6) – spousal rollover on death of spouse
o If spouse receives property as consequence of death (by will, joint ownership, intestate)
then s.70(5) doesn’t apply – deemed to have disposed and acquired property at ACB of
deceased spouse (NOT FMV)
 Gains are deferred until surviving spouse dies or disposes of property
o Automatically occurs unless election otherwise when filing final tax return
Spousal Rollover


Exception to s.69(1)
S.73(1) – Inter vivos transfer of capital property between spouses or CL partners
o (1.01) – qualifying transfer are to a current spouse/CL partner OR former spouse/CL
partners under terms of marriage settlement (division of property)
o (a)(ii) – TP transferred property to spouse who qualifies (both residents of Canada)
UNLESS TP elects that this doesn’t apply, property to deemed to be disposed of it for
proceeds equal to ACB of that spouse immediately before transfer (bought it for 100,
spouses ACB is 100)
o (b) – property is deemed to have been acquired by recipient spouse at equal ACB
 For joint property, one spouse can transfer ½ interest to former spouse to have
undivided interest (separating joint property on breakdown)
 Allows fair division based on tax consequences for each spouse (might be in
different brackets)

If sold for over FMV – still same ACB for both spouses (original ACB) UNLESS spouse elected out
of rollover

Rollover is automatic UNLESS the transferor ELECTS to not have the rollover apply (generally
when relationship is ending)
o Then s.69(1) applies

s.248(1) – CL partner: person who cohabits in conjugal relationship with TP
o (a) – cohabited for 12 month period = CL spouses for tax purposes
o (b) – person who cohabits with TP and have child together are immediately CP spouses
o Live apart for 90 days and the CL partnership is ended
Tax
ATTRIBUTION RULE




S.74.2(1)(a) – Attribution rule: gain or loss is deemed to be of lender/transferor
o Applies if individual lends/transferred property, either directly or indirectly for benefit of
TP’s spouse
o Take all gains that recipient spouse gets and if they have ACL from other properties, can
net those out and the remaining gain is that of transferor spouse – when property is
disposed of, the CG/CL is attributed to original spouse
o IF relationship has ended or spouse died, NO attribution back
Policy: allows spouses to divide assets between then
Applies while in relationship ONLY – doesn’t not apply after
Rule applies whether or not you elect out of s.73
Personal Use Property (PUP) and Listed Personal Property (LPP)

S.54 – Personal Use Property
o (a) – property owned by TP that is used primarily for personal use or enjoyment of TP
and persons NAL of TP (not for income earning purpose)
o Includes real and personal property (usually depreciable) – chattels, recreational
property principal residence
o Includes property owned by corporation but used by related individuals
o Does NOT include income generating investment property
o TEST: is property used primarily for personal enjoyment?
 If partly business, partly personal, apportion the amount
 Difficult – personal enjoyment is subjective!
o

NO LOSSES ALLOWED FROM PUP (including LLPs, as a subset)
S.54 – Listed Personal Property (subset of PUP – more likely to increase in value, produce gains)
o All or portion of any: print, etching, drawing, painting, sculpture or other similar work of
art (potentially very broad if you argue it is work of art), jewellery, rare folio, rare
manuscript, rare book, stamp or coin – represent real value
 Potentially have a lot of value that can increase (like an investment)
o CANNOT deal in these items (if a trader, TP is earning income from business as ACNT,
not LPP)
DISPOSAL OF PUP AND LPP

S.46(1) - $1,000 rule: you can essentially ignore items worth less than 1,000 for purposes of CG
o (a) – If ACB is under 1,000, ACB is deemed 1,000
o (b) – if POD/sold for under 1,000, POD is deemed 1,000
 If POD is over 1,000 and ACB is under 1,000 – CG is difference between 1,000
and POD over 1,000
o Amount hasn’t gone up in 16 years – shouldn’t it to account for inflation?
o Policy: Simplicity – don’t have to report goods unless there is significant gain

Is the PUP worth more as a set?
o If yes, go to s.46(3), If no, go to s.46(2)

S.46(2) – partial disposition: only part of PUP is disposed of
o (a) ACB to TP for the part is deemed to be the greater of (i) ACB (actual or deemed
under s.69) and (ii) apportioned amount of 1,000 for the part ACB as part of whole ACB
 (i) Partial ACB = total ACB / # of pieces – if the ACB is less than this, it will be
deemed to be this amount
 (ii) ACB of part / ACB of whole, as set
 Proportion of the total cost of the set!
Tax
o
o
o
o
(b) POD of part disposed will be deemed to be the greater of (i) POD (actual or deemed
under s.69) and (ii) the apportioned amount of 1,000 that the POD of the part is to the
whole of the property
 (i) Partial POD = total POD / # of pieces – if the POD is less than this, it will be
deemed to be this amount
 (ii) POD of part / POD of whole, as a set
 Proportion of the total cost of the set!
S.69 – when disposing for NO proceeds or proceeds less than FMV NAL, OR to any
person as gift, TP is deemed to have received POD of FMV
If sold for less than FMV, deemed POD = FMV
Question of fact as to whether the property is of a type normally disposed of as a set:
 Should match, belong together
 Be produced/issued around the same time (no application to coin collections
spanning many years)
 Would ordinarily be worth more as set than individual pieces (most important)
 Aggregate FMV must be more than 1,000

S.46(3) – PUP ordinarily disposed of as a set
o If disposed of through more than one disposition to 1 person OR a group of NAL and
before 1st disposition the asset had total FMV of more than 1,000, properties shall be
deemed to be a single PUP, each disposition shall be deemed a partial disposition
(s.46(2))
o TPs POD will be FMV of complete set
o Policy: looks like TP is trying to sell each thing for under 1,000 to avoid tax

S.40(2)(g)(ii) – no loss from LPP – any loss from LPP is deemed NIL
o Assumption that you wore it out and sold it at a loss
o LPP losses are only deductible against LLP gains realized to get the net gain on LPP,
and one half the net gain is the taxable net gain on LPP
LPP NET CAPITAL LOSSES AND GAINS
o
o
o
s.41(1) – taxable net gain for LPP is ½ of net gain from LPP
S.41(2)(a) – take gross gain from LPP and gross loss from LPP and set them against each other (if
there is a positive amount = net gain)
o Can use losses in previous 7 years and forward 3 years
o (b)(i) – can only use losses once
o (b)(ii) – use oldest losses first (don’t want them to expire in 7 years)
o (b)(iii) – can’t create LPP loss by deduction more losses than gains in the year (can’t
deduct losses in excess of gains – carry them forward/back)
S.41(3) – LPP loss: loss is the amount where the loss from disposition of LPP exceeds total LPP
gains for the year
o Anything not used to set off LPP gains, is carried over
o Cannot be used against CG – ONLY for LPP gains!
CALCULATION FOR CAPITAL GAINS AND LPP GAIN
[ TCG: CG / 2 ] + [ TNG LPP: Total LPP gain – Total LPP loss) / 2 ] – [ ACL: CL / 2 ] = Net Taxable CG


S.41(1): Net Gain from Disposition LPP: Total LPP gain – Total LPP loss
S.41(1)(a): Taxable net gain from Disposition of LPP (TNG LPP): (LLP Gain – LPP Loss) / 2
o Taxable = already divided in half
Tax
Principal Residence Exemption

PR is PUP – for personal use and enjoyment

Rule: no capital gains tax on PR, one residence per family unit (spouses, kids under 18)
o Policy: would hinder housing market if taxes collected on each gain for PR – less money
to reinvest to buy a new home and people would avoid moving for EM or education
(would renovate instead)
o No portion of mortgage interest is deductible (Attaie)
o Capital additions (Eg. Swimming pool that increased property value) will increase ACB

S.54 – Principal Residence: housing unit, includes the land immediately adjacent to housing unit
as can reasonably be considered as contributing to personal use and enjoyment of house,
UNLESS it exceeds 0.5 hectares
o
Includes house, apartment, condo you own, recreational property, mobile home, house
board, leasehold (99-year lease), co-op
o
(a) – must be ordinarily, normally inhabited throughout the year by qualifying people
 Includes summer homes inhabited for 3 years a year – still normal for property
o
(b) – property must be designated in year that you want to claim
 Only 1 property qualifies for exemption per year for family
 Planning issues: consider which property is more valuable,
appreciating faster, other aspects
 NOTE: consider definition of spouse at time of issue and if they were
considered spouses AT THAT TIME – allowed 1 per family or 1 per person?
 If joint owners, each spouse must designate ½ interest in same property – can’t
be ½ of different properties designated
o
(e) – includes land the house is on and land adjacent EXCEPT if adjacent land exceeds 0.5
hectares, excess will be deemed to not have contributed and not eligible for PRE
 Rhodes: if more than 0.5 hectare, objectively consider all relevant
circumstances - has TP establish on BOP that without more land, they could
not practically have used and enjoyed the unit as a residence?
 Must be NECESSARY to house as residence, not just contribution
 Cassidy: look at minimum lot size year by year – if minimum allowable size was
restricted in any year such that excess was necessary to live, then IN THAT
YEAR ONLY, the land qualified as part of PR
 Determination per year if land was necessary for residence
 Yates: look at whether lot could be subdivided at time of disposition
(overridden by Cassidy and year by year examination)

To get PRE, must have been resident for all years claimed, designated and qualified as PR
(ordinarily inhabited during the year)

S.40(2)(b) – Formula to Calculate PRE
o A = CG from PR without exemption: POD – ACB + expenses of disposition
o B = one + number of tax years after last acquisition date when it was TP’s principal
residence and during when TP was resident in Canada
 “Last Acquisition” = deemed acquisition included on emigration/immigration
o C = number of tax years after las acquisition that TP owned the property
A x B / C = PRE
A – [ A x B / C ] = CG AFTER Principal Residence Exemption (ideally $0)
Tax

NOTE: “last acquisition date” – if TP immigrates to Canada, TP would have disposed AND
REACQUIRED on date of immigration so that is the date (not entire time owning it – have to be
resident in Canada) (see Emigration/Immigration section in CG)
o Can’t deduct a loss on PUP – if it would be in excess of CG, reduce by 1 year
o Policy: have +1 year to allow people to move from 1 house to another and shelter both
in the year of the move (both would qualify as PR in year you sell one and buy another)